Skip to Main Content

Inefficient Markets: An Introduction to Behavioral Finance

Online ISBN:
9780191596933
Print ISBN:
9780198292272
Publisher:
Oxford University Press
Book

Inefficient Markets: An Introduction to Behavioral Finance

Andrei Shleifer
Andrei Shleifer

Professor of Economics

Harvard University
Find on
Published online:
1 November 2003
Published in print:
9 March 2000
Online ISBN:
9780191596933
Print ISBN:
9780198292272
Publisher:
Oxford University Press

Abstract

This book describes an approach, alternative to the theory of efficient markets, to the study of financial markets: behavioural finance. It begins by assessing the efficient market hypothesis, emphasising how some of its foundations are contradicted by psychological and institutional evidence. It then introduces the theory of behavioural finance and devotes the rest of the book to explore its main aspects, concentrating on the role and characteristics of noise traders, arbitrageurs, and investors. Chapters 2 through 4 focus on the limits imposed on arbitrage by factors such as risk aversion or agency problems. Two crucial conclusions are reached. First, plausible theories of arbitrage do not lead to the prediction that markets are efficient—quite the opposite. Second, the recognition that arbitrage is limited, even without specific assumptions about investor sentiment, generates new empirically testable predictions, some of which have been confirmed in the data. Chapters 5 and 6 centre on how investor sentiments are built, emphasising some empirical violations to the idea of efficient markets such as price bubbles. The book concludes suggesting that the theory of behavioural finance is indeed more effective that the efficient market theory in explaining some financial evidence.

Contents
Close
This Feature Is Available To Subscribers Only

Sign In or Create an Account

Close

This PDF is available to Subscribers Only

View Article Abstract & Purchase Options

For full access to this pdf, sign in to an existing account, or purchase an annual subscription.

Close